TREASURY

Financial Services Regulation

Edward Balls: Concerns have been expressed to the Government about the effects of a possible takeover of the LSE by a company based outside the UK on the LSE's rules, in particular the rules applying to those companies whose securities are traded on the LSE's markets. This is a concern that the Government share. In this statement I set out our approach.
	The Government are neutral as to the nationality of the owners of Recognised Bodies (RBs)(1). Of the current RBs, five are subsidiaries of overseas based companies. Openness to overseas investment has been an important part of the success of the City in recent years and will continue to be in the future.
	The Government would also not seek to intervene in the independent judgments of the Financial Services Authority (FSA) and the competition authorities in respect of any changes of ownership of RBs. The FSA and the competition authorities have specific tasks to perform on an independent basis within clear legislative frameworks set out by Parliament. Independence and indifference to nationality are key elements of the UK's regulatory regime.
	Investors, issuers of securities, and members of RBs all have an interest in RBs having rules which strike a balance appropriate to that body between the benefits of the restrictions, particularly in terms of investor protection and the impacts on issuers, members and other stakeholders. Such a balance is vital to ensuring exchanges play their role in creating deep and liquid capital markets which promote economic growth. In this respect, the Government believe it is essential that changes of ownership of RBs should not put at risk the achievement of such a balance by RBs.
	Our current regulatory regime for RBs is based on high-level legislative principles supplemented by FSA guidance. Within this framework, RBs have the freedom to develop their own rule books in consultation with their members.
	I have discussed these issues widely in recent months and made clear that I would expect any potential new owners of the LSE to want to provide certainty and reassurance to the exchange's stakeholders. I welcome the statement which the US's Securities and Exchange Commission issued on 16 June. This provided a helpful clarification of how the SEC sees the current position in respect of the scope of US securities laws.
	However, as the FSA pointed out in its statement of 12 June, there is a degree of uncertainty about how overseas ownership of the LSE would affect its regulatory regime. It depends on exactly how any owner would attempt to integrate the LSE with its existing business and the legal framework in other countries—both of which can be subject to change.
	It is important that there is certainty that the rules of RBs in the UK will continue to be proportionate, balancing the benefits of restrictions with the impacts on stakeholders.
	The Government will now legislate to enhance the FSA's powers in this area. This will confer power on the FSA to veto changes to the rules of an RB in defined circumstances. The aim would be to enable the FSA to stop RBs making rule changes whose effects on issuers and others were likely to be disproportionate to the public benefits. The Government will provide further details in due course.
	The purpose of such a change to legislation is not to involve the FSA in the day-to-day commercial judgments of the RBs. The power will be a right of veto and not a right of approval of rule changes. It will provide a back stop to ensure that the RBs stakeholders can be certain about the proportionality of the rules of the RBs going forward.
	This new provision will ensure that UK RBs remain open to overseas ownership. It makes the permissible outer limits of the RB rules blind to the nationality of their ownership by entrenching better regulation principles in respect of those rules.
	It should also be clear that we will not allow this legislation to be evaded through abuse of our recognised overseas investment exchange and clearing house regimes.
	(1) Under section 18 of the Financial Services and Markets Act 2000 there are seven recognised investment exchanges (the London Stock Exchange, London International Financial Futures Exchange, EDX London, Virt-X, ICE Futures, the London Metal Exchange and NYMEX Europe) and two recognised clearing houses (CREST, and LCH. Clearnet Ltd).

Home Reversion Plans and Home Purchase Plans

Edward Balls: The Treasury is today laying before Parliament the secondary legislation to introduce Financial Services Authority regulation of activities relating to these products. Copies will be available in the Vote Office and the Library of the House, and will be accessible on the Treasury website at: www.hm-treasury.gov.uk

FOREIGN AND COMMONWEALTH AFFAIRS

Afghanistan: Counter Narcotics

Kim Howells: Following the launch of the National Drug Control Strategy at the London Conference on Afghanistan in January, the UK continues, as partner nation, to support the Government of Afghanistan's counter narcotics effort. This year's planting season pre-dated the launch of that strategy and, although last year saw a 21 per cent. decline in opium poppy cultivation across Afghanistan, this year it is likely that there will be a significant rise in cultivation. This is worrying and is due, in part, to a substantial increase in planting of opium poppy in the south of Afghanistan, including in Helmand Province. But in areas where governance, security and levels of development have improved, there are signs that last year's cultivation reductions will be sustained. At the same time, the Government of Afghanistan's eradication effort has been more effective than in previous years.
	The Government of Afghanistan's National Drug Control Strategy offers the best means to tackle the opium trade at its source. We are determined to work with the Government and people of Afghanistan to sharpen delivery in order to achieve sustained impact on the ground. In particular they will be focusing their efforts on targeting the traffickers and their accomplices who profit most from the trade. We will be assisting by helping to establish the rule of law across Afghanistan, which is essential to counter narcotics efforts and to the success of the broader reconstruction process. The UK is working with the Government of Afghanistan and with other donors to develop new intelligence structures and to build the capacity of counter narcotics law enforcement and criminal justice agencies. These efforts are starting to show results. Since August 2005 we have seen the conviction of over 190 traffickers, and a significant increase in drugs related seizures and the destruction of laboratories. These actions are helping to disrupt the trade, forcing traffickers to move and store drugs in smaller quantities.
	The Department for International Development also continues to support Afghan National Programmes focused on strengthening and diversifying legal rural livelihoods, including in Helmand Province where my right hon. Friend the Secretary of State for International Development recently announced that the UK would contribute £30 million to livelihoods activity over the next three years. Since April 2003 over 12 million labour days have been provided and over 8,000 km of roads rehabilitated. Almost US$70 million micro-finance loans have been disbursed over the last two years and US$180 million in grants approved to some 10,000 Community Development Councils. In addition, since September 2005, over 500,000 farmers have been provided with seeds and fertiliser.
	On 5 September last year I announced, in a joint press conference with Afghan Counter Narcotics Minister Qaderi, that the UK would spend a total of £270 million in support of the Afghan National Drug Control Strategy between 2005-08. This includes £130 million of DfID funding. In 2005-06 the UK spent the following in support of the eight pillars in the National Drugs Control Strategy:
	Pillar 1: Public Awareness—£649,000 in support of Afghan efforts to inform members of the population about counter narcotics policies, legislation, operations and alternatives to poppy cultivation and to persuade farmers not to grow poppy.
	Pillar 2: Demand Reduction—£1,112,000 on treatment, rehabilitation and harm reduction programmes.
	Pillar 3: Law Enforcement—£20,787,000 on building the capacity and equipping the Counter Narcotics Police of Afghanistan and the Afghan Special Narcotics Force.
	Pillar 4: Criminal Justice—£1,112,000 to establish a counter narcotics Criminal Justice Task Force of 84 judges, prosecutors and investigators and high security detention facilities.
	Pillar 5: Institution Building—£5,177,000 to establish and staff a fully operational Ministry of Counter Narcotics (MCN) and to build capacity within the counter narcotics division of the Ministry of Interior.
	Pillar 6: Alternative Livelihoods—£37,520,000 to strengthen and diversify legal rural livelihoods.
	Pillar 7: Eradication—£5,709,000 to support survey, monitoring, and verification of eradication to target it where legal livelihoods exist.
	Pillar 8: International and Regional Cooperation—£2,006,000 to support border control and other regional projects focused on disrupting the flow of illicit drugs and precursor materials across Afghanistan's borders.
	The UK also contributed £9,000,000 to the Government of Afghanistan's Counter Narcotics Trust Fund and a further £1,500,000 to the Law and Order Trust Fund established to cover the cost of police salaries and equipment. A further £2,970,000 was spent on strategy, research and reviews, including support to the United Nations Office on Drugs and Crime's annual poppy survey.

Situation in the Middle East

Margaret Beckett: I welcome this chance to update the House on the situation in the Middle East since I wrote to Members of Parliament on 14 August.
	Since the adoption of UN Security Council Resolution 1701 on 11 August, the Government have been focused on turning the cessation of hostilities between Israel and Hizbollah into a durable cease-fire and a long-term solution. And we have been working hard with key partners and the parties to re-energise the Middle East Peace Process, an issue of vital importance to the region and wider world. My right hon. Friend the Prime Minister visited Lebanon (the first ever visit by a British Prime Minister), Israel and the Occupied Territories from 9 to 11 September and I visited Egypt from 7 to 9 September.
	Lebanon
	As the Prime Minister said during his visit to Lebanon, we must ensure the full implementation of UNSCR 1701 to support the Lebanese people's desire for a stable, prosperous and democratic future for Lebanon.
	Following the ceasefire, one of our immediate priorities has been to address the humanitarian and reconstruction situation in Lebanon. We have seen an easing of the humanitarian situation. Most of the Lebanese displaced population have now been able to return home or are on their way home. Food and other essentials are now available. A worsened humanitarian crisis has been averted. After intensive efforts by the UK and other international partners, Israel announced the lifting of its blockade on Lebanon on 7 September. But life in Lebanon remains difficult for many.
	The UK continues to play its part in the humanitarian and recovery efforts. The UK will contribute a total of over £40 million to Lebanon, including £22.3 million for humanitarian assistance and early recovery projects. UK funding has so far helped to provide and deliver shelter, healthcare, food, water and sanitation. We have provided over £1.5 million to clear spent and unexploded munitions. Our funds will also contribute towards emergency bridges to help open critical humanitarian supply routes to those isolated in southern Lebanon. The first three prefabricated bridges provided by the UK arrived in Beirut on 1 September.
	The other immediate priority has been to stabilise the peace. Urgent work has been undertaken to strengthen the UN Force in Lebanon (UNIFIL), in order to carry out the range of important new tasks set out in UNSCR 1701. The force will be led by France until February 2007, and then by Italy. On 25 August, EU Foreign Ministers in Brussels pledged up to 7,000 troops and a range of sea, air and specialist assets.
	Due to our current operational commitments elsewhere, we will not be able to provide ground troops. But the UK has sent HMS York to participate in the Interim Maritime Force and we would consider providing, in addition, two E3 AWACS and six Jaguar aircraft if needed. We are willing to respond positively to requests to use our Sovereign Base Areas on Cyprus. We are also paying our share of the costs of the UN operation, on which we pay a premium as a permanent member of the UN Security Council.
	During his visit to Beirut, the Prime Minister made clear that the UK intends to play a major role in Security Sector Reform (SSR). The Lebanese armed forces have a crucial role in the country and the UK has set aside £2.5 million to support efforts to ensure that the Lebanese armed forces take in control of all parts of the Lebanon. We will work with the Lebanese Government in terms of training and equipment and any other help that we can give.
	We must also work to address the underlying root causes of this conflict. This means strengthening the ability of the democratically-elected Lebanese Government to be in sole charge of Lebanon, and ensuring that militias, supported and supplied from outside Lebanon, can never again plunge the region into crisis.
	Middle East Peace Process (MEPP)
	We must not lose sight of the fact that the conflict in Lebanon arose out of the continuing impasse in Palestine. This issue is of fundamental importance, not just to Israelis and Palestinians but to the whole of the region and the wider world. As the Prime Minister made clear in Los Angeles on 1 August there is an urgent need to re-energise the Middle East Peace Process. We have been working hard to bring the parties back to the Road Map.
	To achieve this goal it is imperative that the violence on the ground stops. As a result of the current situation in Gaza more than 220 Palestinians have died, including more than 60 children. Three Israeli soldiers have been killed and one abducted. We continue to call for the immediate and unconditional release of Corporal Shalit. We also condemn the continued rocket attacks on Israeli civilians. We call on Israel to exercise restraint and to do everything possible to avoid civilian casualties. As the European Council said on 18 July, those elected members of the Palestinian Government and legislature detained by Israel should be released.
	We remain seriously concerned about the humanitarian situation in Gaza. The "Temporary International Mechanism" (TIM) is now operational. The TIM is paying allowances to 10,000 officials in the health sector. It is also paying for fuel to reach hospitals across the Occupied Territories. It has supported the continuation of health services in the current difficult environment. The International Development Secretary has announced £6 million so far for the TIM, for essential health supplies and to support water, sanitation and electricity services. The UK will contribute up to £12 million. The EC has already paid an allowance to 43,000 of the poorest Palestinians.
	The Prime Minister used his visit to exchange ideas and identify a way for the parties to re-engage. Both Prime Minster Olmert and President Abbas agreed to meet with each other without conditions and made clear their commitment to a political process. The Prime Minister also discussed the formation of a National Unity Government with President Abbas. President Abbas subsequently announced on 11 September that agreement had been reached to form a National Unity Government. We await details on the programme to which this Government are committed. But, as the Prime Minister said when he was with President Abbas, such a Government, if based on the Quartet requirements, offers the possibility of re-engagement by the international community.
	As I made clear to President Mubarak and the Egyptian Foreign Minister, Aboul Gheit, we fully support Egyptian efforts to mediate between Israel, the Palestinian Authority, and the militants currently holding Corporal Shalit. I also discussed with them and the Secretary General of the Arab League, Amr Moussa, the need to re-energise the MEPP. Egypt and the Arab League share this goal.

Update on Sudan

Margaret Beckett: Sudan remains a top priority for the UK Government. The Department for International Development and the Foreign and Commonwealth Office are jointly supporting parties in Sudan to deliver the Darfur Peace Agreement (DPA) signed on 5 May, and to promote development in Sudan. The UK played a leading role in securing UN Security Council Resolution 1706, which was passed on 31 August. This resolution expands the mandate of the UN Mission in Sudan (UNMIS) to Darfur in support of the early and effective implementation of the Darfur Peace Agreement and the N'djamena Agreement, and strengthens the military personnel and civilian component of UNMIS to do this.
	The passage of Resolution 1706 demonstrates the international community's continued commitment to peace in Darfur. In the interests of the safety and welfare of its civilians, we continue to press the Sudanese Government, at the highest level, to give consent to its implementation. We are concerting with others in the international community, including the UN, US and key Arab states, to achieve this. I raised this with Egyptian President Mubarak and the Secretary General of the Arab League, Amr Moussa, in Cairo last week. And both my right hon. Friend the Secretary of State for International Development and my noble Friend the Minister for Africa (Lord Triesman of Tottenham), have been engaging key interlocutors in the Government of Sudan and beyond.
	In the meantime we will continue to support the African Union's efforts while a transition is under-way. The African Union is doing an important job in the most difficult of circumstances and it is most important that they stay until a UN force is able to deploy. On 18 July, the international community in Brussels promised further support of around $200 million, including the £20 million that the UK is providing this year.
	The continuing violence in Darfur is having devastating effects. It must stop immediately. We condemn the continuing violations of the ceasefire by all parties, particularly the violence directed at civilians and attacks on humanitarian agencies. Because of this insecurity the UN and NGOs are unable to reach 470,000 people whom they believe to be in need of their assistance.
	We are also gravely concerned by the recent military build-up in Darfur and reports of Sudanese Government military attacks as part of its "stabilisation plan for Darfur". As the UN Secretary-General has said, this plan is inconsistent with the DPA. Any attempt to take renewed military action and any continued rebel activity would further undermine the prospects of achieving peace and could lead to a further humanitarian catastrophe.
	A broad-based and inclusive implementation of the DPA, signed in Abuja on 5 May 2006, remains the basis for stability, peace and reconciliation in Darfur. The UK played a leading role in negotiations in Abuja: the Secretary of State for International Development attended the final days of negotiations in support of the AU mediation to help secure a deal. All parties should work to put its provisions into effect. More rapid progress by the Government of Sudan in disarming the Janjaweed is key. It is also important for the signatories to the DPA to work to bring the non-signatories on board. To this end, the efforts of the SPLM are most welcome.
	In the meantime the non-signatories need to be fully involved in the effective monitoring of the ceasefire and investigation of violations through existing ceasefire mechanisms. In this way, they should be fully held to account for fulfilling their obligations as set out in the 2004 N'djamena Agreement on Humanitarian Ceasefire on the Conflict in Darfur.
	The UK remains committed to peace in Darfur, and the wider Sudan. We will continue to seek a solution to the conflict there. As part of this, we have appointed a new special representative for Darfur, William Patey, a former ambassador in Khartoum, to replace Rod Pullen, who has retired from the Diplomatic Service.

TRADE AND INDUSTRY

Office of Fair Trading Report "Opium Derivatives: A Review of Undertakings Given by Macfarlan Smith"

Ian McCartney: We welcomed this Office of Fair Trading report, which was published on 7 March 2006. As part of its statutory role, the OFT regularly reviews undertakings given by organisations following earlier competition investigations. In this case, the OFT reviewed the undertakings by MSL following a report from the Monopolies and Mergers Commission (MMC), and concluded that competition was being impeded by the impact of Government policy in the licensing of imports for opium derivatives. It made the recommendation that Government consider competition when setting licensing policy for the import of opium derivatives.
	The OFT recommendation is in line with the Government's commitment to encourage and enhance the competitive process to bring the wider benefits to the UK economy. Preventing abuse of market power is a key element of this, and it is important to ensure that regulation which affects such market power is operated in a transparent manner. It is therefore clear that Government should regularly review policy decisions such as this to ensure that the detrimental impact on competition is prevented, or, where other objectives intervene, limited. The OFT report has provided an excellent catalyst for such a review, and the Government will commit to repeating the process of review every five years.
	During discussion with MSL and other parties while developing the response, a consistent complaint was the lack of a level playing field between the UK and other European countries (something recognised in the original MMC report). Currently, the UK is the only major European producer to allow imports.
	There has been limited discussion of this at European level, and the Government are committed to raising this issue again with the European Commission, to develop options for the creation of a single market for these products.
	The full Government action plan and copies of OFT's report will be placed in the Members' Library. In preparing this response, we have worked closely with the relevant Government Departments, in particular the Home Office, which is responsible for licensing policy and the Department of Health.